Oliver Griffiths

March Madness

As March Madness reaches its crescendo, I have been trying to work out why college sports are so popular here. The only student sporting event that gets any major media attention is the annual Oxford and Cambridge Boat Race, which was held last Sunday. By contrast, US college basketball and football gets wall-to-wall TV coverage. The best explanation I've heard is that professional basketball and football only took off in post-war America, allowing the college games to build a following that they have kept. Had the Football League not been formed in 1888, British workplaces could now be filled with team brackets ahead of the university football cup. 

It is interesting what sports can tell you about a country. I have been intrigued by the contrast between the Premiership (the top football league in England) and the NFL - and what it might say about attitudes to competition and foreign investment. These are not the things that you capture in the classic measures such as the World Bank's Doing Business report. 

You might reasonably expect the NFL to epitomise testosterone-fuelled competition. But it feels like 1950s dirigism next to the Premiership's Gilded Age capitalism. For one thing, there is promotion and relegation between leagues in the UK: come in the bottom three and you go down a league. If you have a bad season in the NFL you live to fight another season.

Another difference is that different teams win the Super Bowl. Unfettered capitalism leads to monopoly, yes? Only three teams have won the Premiership since 1995. In the past three seasons (and probably this season) the same four teams in the Premiership finished in the first four positions. There is remarkably little criticism about this. In the NFL the worst teams get to pick the best college players. There's none of that redistribution in the Premiership.

And where does the money come from? Of the top four Premiership teams, Americans majority own Liverpool and Manchester United, a Russian owns Chelsea, with a US-Russian bidding war rumoured for Arsenal. This state of affairs is not universally popular. But it's hard to envisage foreign ownership of the biggest NFL franchises in the first place.

Life can mirror sport. The success of the City of London since the Big Bang has been characterised as the Wimbledon effect: great tournament, few great domestic players. You see the same approach in Sunday's Boat Race. Undergraduates and postgraduates competed freely for places in the crews. The closest US equivalents - the Harvard-Yale race or the Eastern Sprints - are restricted to undergraduates. The result is an Oxford crew with an average age of 25 and five Olympians on board racing a Cambridge crew with an average age of 24. But it makes for great, multinational crews, from which the relatively few British participants that make the grade consistently step up to the very successful British Olympic rowing programme. And, having the same two crews each year, it also makes for easier bracket predictions.

Posted at 11:46 06 April 2009 by Oliver Griffiths  |  Comments[0]

American attitudes to trade

I have been looking at the recent Gallup poll on trade. The interesting story to write on US public attitudes to trade is that support is falling off a cliff and the US is about to pull up the gangplank to global trade. So the Gallup headline - 'Americans more negative than positive about foreign trade' - writes itself. But I have a couple of observations on the data which do not fit well within the narrative of a calamitous and unprecedented collapse in US support for trade: first, this year's figures (47% seeing trade as an opportunity, 44% as a threat) are almost exactly the same as in President Clinton's first year (46% and 44% respectively); second, support for trade improved significantly between 2007 and 2008, from negative 11 to negative 3. As an aside, it is also worth noting the exquisite mercantilist framing of the question: 'do you see foreign trade more ... as an opportunity for economic growth through increased American exports or a threat to the economy from foreign imports'. Under this formulation, bananas and coffee beans - both barely produced in the US - are somehow an economic threat. The logical conclusion of the question is that the best thing for the US is to export as much as possible and import nothing, which is a self-evident nonsense.

But it is notable how international trade, which is seen as being at the centre of 'Anglo-Saxon capitalism', has so little support in the US compared to other countries. The US public is consistently among the most suspicious of the effects of trade. See, for example, page 19 of the Pew Global Attitudes survey from last June, where US support for trade stood at 55%, compared to 79% in France (a country which is often rolled out as being instinctively anti-trade). Quite why US support for international trade is so low is a puzzle. Has America, which maintained high tariffs throughout the nineteenth century, retained a Hamiltonian appreciation for the benefits of protection - in which case, why have other countries which followed a similar developmental pattern not? Has trade had more baleful impacts on the US economy than on others - in which case, why has this effect been felt most keenly in the US, with a ratio of trade volume to GDP much lower than most other developed countries? Is free trade tainted by being a relatively partisan issue in Washington - in which case, why is there so little distance between the views of those polled who identify themselves as Democrat or Republican? Do supporters of international trade talk the wrong language - in which case, how has the dialogue been so different in other countries? Is it because employers provide many benefits provided by the state in other countries, making the loss of a job more traumatic - in which case, why is it international trade, which is estimated to cause under 5% of American job losses (and create many more), that bears so much of the criticism? I think this is a fascinating topic.

Professor Doug Irwin notes that before the second world war most self-respecting US Congressmen prefaced comments on international trade with the proviso 'I'm not a free trader but ...' and that this switched during the 1950s to 'I'm not a protectionist but ...'. I think and hope that we are some way from the first proviso coming back into fashion (though the last few months have shaken the firmness of my conviction on that). In that regard the Gallup poll is relatively reassuring.

Posted at 10:35 05 March 2009 by Oliver Griffiths  |  Comments[5]

Santa, Elves and Comparative Advantage

One of the great things about autumn in the US as a parent of young children is the steady flow of diversions. October is all about the lead up to Halloween. November is all about Thanksgiving. December is all about the holidays. So, as we approach the end of November, the kids' questions about Santa Claus are just round the corner.

As everyone knows, Santa Claus has helpful elves that make all the presents for all the children around the world, for Santa to distribute on one frantic chimney-to-chimney delivery. This raises several problems, including why a number of the presents my children will receive will have 'Made in USA' or 'Made in China' printed on them. I think I have the answer to this particular problem: it's comparative advantage.

I have no doubt that Santa's elves could make anything and I assume that they could make it all better and cheaper than anyone else. They have absolute advantage in producing all goods. But does it follow that it makes sense for them to produce all the presents that Santa will give out? In a word, no.

The elves will be much better at making some things than anybody else (let's say wooden trains), but they will be only a little better than other people at producing other things (let's say board games and chocolate). The elves have a comparative advantage in producing wooden trains. If they specialise in producing wooden trains, they can trade the excess production - which everyone else will value highly because they can't do it as well - for lots of board games and chocolate that they can make better, but only a little better, than other producers. Specialisation in goods where they have comparative advantage will be far more efficient. It will take the elves less time to put together the full order list for Santa, allowing them more time to enjoy the Northern Lights. And it will provide an explanation for why the chocolate in the stocking will have 'Made in the USA' printed on it.  

It may sound inconsequential but it is a powerful - and comforting - real-world conclusion. Is China going to end up manufacturing everything? No. Is Brazil going to dominate global markets for all agricultural produce? No.

Comparative advantage was first set out by Robert Torrens in an essay on the Corn Laws in 1815. It concluded that Britain - at the time the emerging 'workshop of the world' - should buy wheat from Poland, even if a bushel could be produced cheaper in Britain than Poland. David Ricardo then took the plaudits for comparative advantage in his Principles of Political Economy in 1817. For a good contemporary exploration of comparative advantage, see Tim Harford's fun Undercover Economist.

Posted at 09:30 25 November 2008 by Oliver Griffiths  |  Comments[6]

Trade at the G20 Summit

As we all wrestle with policy responses to the financial crisis, one of the dangers is that failings in financial regulation are somehow seen as repudiating the economic and philosophical bases of Anglo-Saxon capitalism. But we need to be careful. How to regulate structured financial products - which, at least in their recent scope, are a new phenomenon - is a very different question from whether to keep borders open to international trade. The latter is an old debate and one that free traders feel that they have won twice before - first in the UK in the 1840s and second after the second world war. Comparisons between the current times and the Great Depression are already starting to feel hackneyed. But it is worth remembering how border restrictions ushered in by the Smoot-Hawley Tariff Act of 1930 stemmed trade flows and deepened the recession. US exports plummeted from $5bn in 1929 to $1.6bn in 1933.

I spoke with someone from the WTO Secretariat recently about my concerns of brand contamination between the financial crisis and trade liberalisation. His view was that, since its inception, the GATT / WTO has been about setting parameters for international trade, with many painful negotiations over the appropriate rules of the multilateral trade road, rather than letting unregulated markets rip.

Trade is not going to be at the forefront of this week's G20 Summit in Washington. But it will be on the agenda. And rightly so, given the importance of maintaining open markets in propelling us out of the economic downturn. Leaders can send a strong signal - to a sceptical world and to their own sceptical bureaucracies - about the importance of locking in a deal on the Doha Development Agenda this year. Some doubt how much good another exhortation on Doha can do. However, we were tantalisingly close to a deal in July and one thing that the intervening period has impressed on me is the value of tariffs being bound in Geneva. Reducing the level of bound tariffs has real value that we overlooked when the economic going was good. It is our insurance policy against protectionism. Senator Reed Smoot and Representative Willis Hawley didn't have the restraint of the WTO.

Posted at 13:02 13 November 2008 by Oliver Griffiths  |  Comments[0]

Quite

My flippant comment on the financial crisis is that it has reinforced for me the different uses of the word 'quite' in American English and British English. Let me explain.

My dictionary provides two meanings of 'quite' that are essentially mutually incompatible. A first meaning is 'completely, fully, entirely'. This is the almost universal American usage and it is in this sense that people have been describing the financial crisis as 'quite worrying'. 'Quite worrying' is interchangeable with 'very worrying'.

But in British usage, 'quite', when used as an adverb or adjective, adopts a second, different meaning: 'somewhat, moderately, fairly'. 'Quite worrying' is less worrying than 'worrying', which is less worrying than 'very worrying'. So natural British responses to the statement that the financial crisis is 'quite worrying' are that the spokesman (a) is badly underestimating how bad the situation is or (b) has a dry sense of humour or (c) is deliberately using the power of understatement.

This paper asks why the markets reacted so strongly to Greenspan's comments about 'irrational exuberance' in 1996 but didn't move when Bernanke said in testimony to Congress in 2006 that he was 'quite concerned about the intermediate to long-term federal budget outlook'. The answer may be global misunderstanding of what 'quite' meant. My experience is that when you work in an environment with both British and American employees, it's best to steer clear of the phrase 'quite good' altogether.

Posted at 09:40 24 October 2008 by Oliver Griffiths  |  Comments[2]

Moral markets

It is a fairly reliable rule of thumb that a financial crisis will be blamed on greed. But the enormity of the current challenges has led some people to signpost this as the high-water mark of this particular tide of globalization (see Irwin Stelzer's argument) that the era of free trade has ended) and question the future of capitalism itself.

President Sarkozy's recent speech on the financial crisis has received a fair amount of interest. It did not feel to me like the broadside against capitalism that some have portrayed it, although there was some therapeutic knocking down of straw-men: 'the idea of the all-powerful market which wasn't to be impeded by any rules or political intervention was a mad one'. It would indeed be a mad idea, which is why we have lots of rules (including a legal code) and regulations (even if they didn't work very well in some cases) to channel markets. The part that has received most attention was President Sarkozy's assertion that 'if we want to rebuild a viable financial system, raising the moral standards of financial capitalism is a priority'.

The idea of moralising the market is an idea as old as the hills, of course. During a crisis it is a natural step on from talking about regulation (which, let's face it, is pretty dull). Regulation changes the duties and incentives faced by a company. At its purist, moralisation aims to change the motivations of the people working in the company. But it hasn't been very successful.

Defenders of free markets argue that moralisation isn't necessary and could do harm. Adam Smith famously said that 'it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest'. But Smith was by no means the first in the game. Perhaps the most notorious rebuke of moralizers was written by Bernard Mandeville, a Dutchman living in London during the birth of modern finance. His Fable of the Bees, written to rile the self-explanatory Society for the Reformation of Manners, argued that it was private vice itself that led to public economic benefits. A libertine kept an array of tailors and innkeepers in business in a way that a church-going spinster did not. You can draw a straight line from Mandeville to Gordon Gekko. Greed is good.

The interesting middle ground is moralizing the mission of the company. Free marketers argue that profits are a company's good works for society and companies trying to deliver public interests will be distracted from their core business. But there is mounting evidence that consumer dollars are interested in the social responsibility footprint of individual companies. So far this - to borrow shamelessly from Google's logo - seems primarily to be on the basis that a company should do no evil. So multinationals have queued up to manufacture in Cambodia because of the ILO's excellent Better Factory Cambodia initiative. If it says 'Made in Cambodia' on the label, you can be fairly certain as a consumer there was no child labour involved. The Kimberley Process, established in 2003 and covering 99% of rough diamond trade, is another good example: you don't want a conflict diamond to be forever. The next step up the ethics chain is to buy from a company because it does good. Consumers may start to reward more systematically companies that get out ahead on addressing climate change, for example.

Going back to Sarkozy's aim of raising moral standards in financial capitalism, I wonder whether corporate social responsibility has had less bottom-line traction among financial services companies than in other sectors of the economy. There have been a few virtue funds launched (though also some counter-veiling vice funds). Some entities run ethical investment policies.  But they feel like a vanishingly small minority. In policy terms, the proxy we seem to have hit on for raising moral standards in banks is to oversee executive remuneration.

Posted at 09:40 20 October 2008 by Oliver Griffiths  |  Comments[0]